The Key to Saving Is Gambling. Seriously.

Heres a mystery for you: 66 million Americans have
zero dollars saved for a rainy day  no financial reserves
whatsoever  and 63 percent of us dont have enough
money saved to cover an unexpected $500 expense without
resorting to a credit card or a pawn shop. At the same time, we
spend $70 billion a year on lottery tickets, blow $120 billion
gambling, and bet another $400 billion on sports events. The
big mystery, which youve probably spotted, is why we seem
to gamble our most precious  and often our last 
dollars for a small chance to win big?

For a long time the academic community saw gambling as
evidence of irrationality and a lack of financial
sophistication. If we could just teach these people to think
rationally, the logic went, they would behave differently and
do the right thing. Ironically, the very rational
idea that the world would be better off if we could just teach
people to think rationally proved irrational.

So what to do? How can we help Americans break the vicious
cycle of gambling and debts and create a new, virtuous cycle of
saving and investments? It turns out, vicious and virtuous
cycles arent as far apart as one might expect, and people
have legitimate reasons for gambling and playing the lottery.
Here are three of them:

Relative Value. In the 1970s two academics, Amos Tversky and
Daniel Kahneman, figured out that we are not  at least
most of us  robots; rather, we are irrational beings.
These godfathers of behavioral economics demonstrated that we
typically ascribe a high personal value to a prospect that has
a low probability of occurring, so long as that event would
change our life in a dramatic way. They explained that choices
between prospects with uncertain outcomes are determined not by
some rational calculation of expected value but instead from a
function that is based on a persons unique situation. In
short, they showed that poor people derive a higher relative
value from a given lottery ticket than do the wealthy.

Missing Market. Grab a friend of yours  please, no
ascot-wearing start-up founders or pinstriped masters of the
universe  and ask that person to imagine themselves as a
multimillionaire. Have them picture their wealth. Next, ask
that person to picture how they became rich. Did they save
diligently and invest? Or do they say, as most people do, that
they won the lottery? Aside from helping a Nigerian prince get
his familys money out of Africa, the only path for many
Americans to serious wealth is . . . gambling. It doesnt
matter that the chances of actually getting rich are about the
same with the lottery and the prince; the lottery is perhaps
the only legal and legitimate route to a new, financially
stress-free life. And so people play; not because they think
its a rational thing to do but precisely because they
hope that a higher power might just smile down upon them. In
this regard a lottery or a casino is filling the void of a
missing market in the industry of hope. Where else can you
literally buy hope for a dollar?

Legends. As the legend goes, FedEx CEO Frederick Smith took
the couriers last $5,000 to Vegas and turned it into
$27,000 at the blackjack table, saving the company. Millions of
Americans play games of chance because they too hope to
catalyze their own turnaround story. If they could just win
enough to pay the bills, theyd be on their way to
success.

As you can see from these examples, the mystery that started
this column isnt really a mystery at all: The 66 million
Americans without any savings are the same people who get the
most value from playing games of chance. It may seem
irrational, but they really do have legitimate rationales for
their behavior  which means that simply trying to teach
people to be rational via financial literacy programs is never
going to work. But could a better understanding of gambling
behaviors help us develop more constructive and financially
sound pathways for these people?

I think so and thus co-founded Long Game with Lindsay Holden
in 2016. Our goal is to help people stressed out by their
financial situation and to make saving fun  maybe even as
fun as gambling. Financial pressures weigh on all of us, and
what we realized is that this burden makes games of chance more
compelling and valuable for these stressed people,
literally.

This is why Long Game is making a prize-linked saving
account (PLSA) product, a lottery-linked personal saving
account in which individuals receive chances to win big prizes
for saving money. A PLSA combines the instant gratification of
a lottery with the long-term benefit of a saving account, often
by taking a small amount of the interest paid to everyone and
using it instead to pay one big prize to a single saver. This
offers a legal and legitimate means to change your life through
luck with no chance of loss.

Given the right tools, Americans will replace the imagined
jackpots of gambling with the real rewards of saving.
Were still early in learning how to harness the forces
that drive people toward gambling and redirect them toward
positive financial habits, but building this creative saving
platform is a gamble were more than happy to take.